Greek Bank Deposits Bleeding Worsens in April

Customers use automated teller machines (ATM) surrounded by the graffiti-covered wall of a National Bank of Greece SA bank branch in Thessaloniki, Greece, on Wednesday, May 27, 2015.

Konstantinos Tsakalidis/Bloomberg

Deposit withdrawals from Greek lenders gathered pace in April, as a standoff between the country’s anti-austerity coalition and its creditors has renewed doubts about the country’s future in the euro area.

Deposits by households and businesses fell to to 133.7 billion euros ($146.7 billion) in April from 138.6 billion euros in March, a 3.6 percent monthly drop, and over €100 billion below the September 2009 peak, the Bank of Greece said today. The drop brings total outflows since the start of an election campaign which catapulted anti-bailout Syriza party to power, to 31 billion euros, or 18.8 percent of total deposits.

Private deposits fell to their lowest level since September 2004, amid concerns that the quarrel between the government and its lenders will lead to a re-denomination of savings to drachmas, or a bail in of depositors.

Greek lenders have lost access to capital markets as well as the European Central Bank’s regular financing operations, amid a standoff between the country’s government and its creditors over the terms attached to the current bailout. They rely on more than 80 billion euros of Emergency Liquidity Assistance extended by the Bank of Greece to plug the hole from deposit withdrawals and stay afloat, a more expensive source of funding, while they are forced to participate in liquidity-draining auctions of government treasury bills.

ELA Ceiling

The ECB reviews their liquidity position on a weekly basis and adjusts the ceiling of ELA provision to offset deposit outflows. As adjustments to the ELA ceiling can be used as a proxy for deposit withdrawals, ECB Governing Council decisions this month point to a deceleration of outflows in May, on expectations that Prime Minister Alexis Tsipras’s government will strike a deal with euro area member states and the International Monetary Fund, to avert default.

Total deposits in the country’s financial system fell to 142.8 billion euros in April, from 149 billion euros in March, according to data released today, as the state transfers reserves of pension funds, hospitals and regional governments from commercial bank accounts to a Bank of Greece account, for use in short-term financing operations. This internal borrowing is the sovereign’s only source of funding other than tax revenue, as the deadlock in talks with creditors has led to the suspension of bailout disbursements since last summer.

Greek banks reported sustained losses in the first quarter of this year, as they struggle with record outflows and a double-dip recession.

Bank Losses

More expensive funding from the European Central Bank and higher provisions for souring loans led to a 159 million-euro first-quarter net loss at National Bank of Greece SA, the country’s biggest lender by assets said Thursday. Its deposits fell 8.3 percent to 60.4 billion euros from a year earlier. Alpha Bank AE reported a third straight quarterly loss at 115.8 million euros on a 14 percent contraction in deposits. Piraeus Bank SA on Wednesday said its loss was 69 million euros as deposits shrank by 15 percent.

Greece’s creditors have said the government must make hard commitments to overhaul its finances or it won’t get a deal to unlock bailout payments.

Bailout talks “are progressing faster but not yet fast enough to conclude,” French Finance Minister Michel Sapin said in an interview with Bloomberg at the G-7 meeting in Dresden. “The red line is that there cannot be a deterioration of the overall budget situation, and in fact there needs to be an improvement.”

Negotiations have stumbled over issues including Greek pensions. With time and patience running out, Greece hasn’t yet said how it will pay almost 1.6 billion euros in IMF payments scheduled for next month, with the first transfer due June 5.

“The main factor of uncertainty remains deposit flight, which is likely to accelerate in case of renewed political uncertainty, leading to a liquidity crunch and the introduction of capital controls, before the issue of domestic politics has been resolved,” Eurasia Group analysts Federico Santi and Mujtaba Rahman said in a note to clients, May 28.

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